business news in context, analysis with attitude

Published on: May 11, 2017

This commentary is available as both text and video; enjoy both or either ... they are similar, but not exactly the same. To see past FaceTime commentaries, go to the MNB Channel on YouTube.

Hi, I'm Kevin Coupe and this is FaceTime with the Content Guy.

There was a story in the New York Times this week that grabbed my attention - it was about a company called StitchFix, a clothing service that generates more than three quarters of a billion dollars a year by not giving its shoppers much choice in the clothes that are shipped to the homes.

Not much choice. But as it happens, a lot of say.

When you sign up for StitchFix, you fill out a form that details your preferences, needs and desired price points. Then, they apparently have some 3,400 stylists, most of them part-time, who choose items that they think the customer would like. Five items (blouses, pants, skirts, even jewelry) are shipped in a box, and the customer can keep any or all of them - and if they keep everything, they get a 25% discount on the total price. What they don't want they send back. And the company learns a little more about the customer, which it incorporates into the next shipment.

If it seems I know a little more about this than you'd think I would, it is because StitchFix boxes have been showing up on my doorstep for the past couple of months - my 22-year-old daughter loves it. She got my wife to do it. And now my 27-year-old son, apparently looking to up his sartorial game, is going to try the men's version. It is worth noting that all their purchases will replace trips that would have been to traditional stores.

It is a very interesting business model - but it isn't really about fashion. It really is about data.

What StitchFix is doing is accumulating enormous amounts of objective and subjective data about its customers, and then is acting on that data to serve the customer. But it isn't just sending people the same old stuff ... it nudges them a bit in new directions, with styles and colors that are close to what's been chosen before, but with just a little more something to them.

This is really smart, because if you can nudge a customer into having a wider fashion palate, and have the data to get them to make purchases they might not have made before, that's the definition of successful retailing.

StitchFix is focusing on fashion, but there's no reason that other kinds of retail - including food - cannot do the same. If you are keeping track of what a customer buys, and then can interact with them in a meaningful and relevant way, you might be able to get them to try a new fruit, a new meat, a new cheese.

Sadly, not enough retailers do this. Sure, they track purchases with so-called loyalty programs, but they don't do nearly enough to turn that data into enduring and meaningful shopper relationships. They send coupons, and maybe offer a discount on gas. But beyond that, very little.

If I were a retailer, I'd look at the StitchFix model, and then talk to millennials about it. I'd find out what the appeal is, and try to then define what the opportunity is to my segment of retail. And then I'd try to make it work for me.

Of course, there's always the other option - doing things the way we've always done them.

Your choice.

That's what's on my mind this morning, and as always, I want to hear what is on your mind.

Published on: May 11, 2017

Whole Foods, as it announced quarterly same store sales that were down 2.8 percent, said yesterday that it has a plan to reverse a negative trend in its business, including a reduction in prices and an expansion of its nascent rewards program.

Barron's reports this morning that "Whole Foods plans to offer new incentives to shop, including an expanded rewards program that could save shoppers money on their purchases. Whole Foods already has a program called Rewards 365, but its new initiative would be more extensive and personalized to each shopper. CEO John Mackey has said before that he wants to focus on rewarding dedicated 'Whole Foodies' who already love the store rather than put all his efforts into wooing new customers.

"Whole Foods, long known for premium prices on many goods, will also look to cut prices after first reducing its own costs, the company said. When those price cuts will come is still not clear. But they could help the company shed its 'Whole Paycheck' reputation."

These moves, the company believes, could help it return to growth.

“We understand that significant change is required at an accelerated pace,” John Mackey, Whole Foods' CEO, told investors in a conference call.

Bloomberg reports that investors "are eager for signs that Chief Executive Officer John Mackey can respond to the worst sales slump in more than a decade," especially since he took total control of the company by moving out former co-CEO Walter Robb. Much of this is prompted by Jana Partners, an activist firm, which "announced it had taken a stake in the company and would push for changes, including possibly a sale of the company. Jana, which is threatening to shake up the company’s board of directors, assembled a team including former retail and grocery executives to help figure out how to fix Whole Foods."

Among the companies rumored to be interested in acquiring Whole Foods are Kroger and Albertsons, though neither has confirmed any desire to buy the company.

Among the personnel changes announced yesterday:

"Gabrielle Sulzberger, a private equity executive, will become the company’s chairwoman," the writes, succeeding John B. Elstrott Jr., who has served on the Whole Foods board since 2009 and will step down as chairman. "Keith Manbeck, a former vice president of Kohl’s, will become the company’s new chief financial officer," the Times writes, succeeding the retiring Glenda Flanagan.

Among those joining the Whole Foods board, the Times reports, are Ronald Shaich, the founder, chairman and co-chief executive of Panera Bread Company. The other new directors are Ken Hicks, a former chief executive of Foot Locker; Joe Mansueto, the founder and chairman of Morningstar; Sharon McCollam, a former chief financial officer of Best Buy; and Scott Powers, a former vice president of State Street Corporation ... Whole Foods also brought Mary Ellen Coe, the vice president of sales and product operations at Google, onto the board.

"The defensive maneuvering," the Times writes, "comes as Whole Foods, an organic foods pioneer that helped change the way Americans shop and eat, faces the greatest crisis of confidence in its 37-year history. It also underscores the growing influence of activist shareholders, who continue to press corporate executives."

The Times also reports that Jana, "arguing that the board was stale and in need of fresh blood, proposed a slate of directors that included Glenn Murphy, a former chief executive of Gap Inc., and Mark Bittman, a former food columnist for The New York Times. Each of potential directors bought their own stakes in the company. Whole Foods tried to broker a peace with Jana, offering to accept two of the hedge fund’s nominees if Jana would refrain from publicly agitating for change for two years. Jana refused, a spokesman for the hedge fund said."

Published on: May 11, 2017

Columbus Business First reports that Kroger is opening a new format - bannered as Fresh Eats MKT - in various central Ohio locations, describing it as a "different kind of convenience store."

The story says that the format includes "produce, deli, beer, wine and floral departments, as well as a drive-thru pharmacy and a Starbucks with indoor and outdoor seating."

Published on: May 11, 2017

Mashable reports that Walmart-owned Jet, which has been aggressive in positioning Walmart to be more competitive with archrival Amazon, has "opened a limited-time artisanal grocery and household accessory store in New York on Wednesday in a partnership with concept-based retailer Story.

"The store will combine some of the e-commerce company's tech prowess with Story's chic decor and eclectic product assortment. The location will also host events featuring big names like celebrity chef Mario Batali and make-up mogul Bobbi Brown."

According to the story, "Jet president Liza Landsman said the company has no plans to expand its brick-and-mortar footprint beyond the temporary storefront ... Landsman says Jet sees the store as a way to showcase what the site has to offer in terms of fresh produce and other foods. She says the company's custom-designed fresh-seal packaging and a proprietary algorithm that routes the most efficient path for deliveries set the company apart from its many competitors in the space."

"[We] are not considering exploring brick-and-mortar at this time," Landsman said in an email interview with Mashable. "We saw this as a unique opportunity to bring everything that Jet fresh grocery has to offer to life in one place at one time — and that was too good of a prospect to pass up."

Published on: May 11, 2017

The Washington Post has a story about the growth of the food hall movements in the US, and how major chefs are following the lead of Mario Batali, who has seen his Eataly format open in New York, Chicago, Boston and soon in Los Angeles.

The story says that José Andrés "will open a yet-to-be-named project devoted to Spain in the Hudson Yards development on Manhattan’s West Side." At the same time, Anthony Bourdain’s "Bourdain Market, a 100-vendor project, is scheduled to open at Pier 57, also on Manhattan’s West Side, in 2019. Chef Michael Mina, whose many restaurants include Washington’s Bourbon Steak, has plans to open locations of his new food hall, the Street, in Los Angeles and Honolulu." And, Philadelphia chef Jose Garces has plans for a concept called Union Market.

Food halls, the story says, "reflect the way more Americans are eating these days, allowing for people to sample a lot of different items (a la small plates) in one place. They encapsulate the move away from fine dining to casual eating, as well as the growing interest in street food. 'You’re shifting the entire food culture and moving away from an entirely brick-and-mortar culture that’s hostile to street food to one that embraces both,' said Bourdain, who, like his fellow entrepreneurs doesn’t see food halls replacing restaurants but, rather, supplementing them ... He said food halls appeal to a kind of democratic ideal in which you’re more likely to find a mix of people from all walks of life, citing Singapore’s trademark hawker markets, on which his project is modeled, as an example."

Published on: May 11, 2017

The Wall Street Journal reports this morning that "European retailers hungry for growth are pushing deeper into the U.S., with some using the overexpansion of their American counterparts as a chance to pick up consumers and prime locations."

Among the largely apparel companies cited in the story as expanding into the US are H&M, Zara, Sports Direct International, Primark and Scotch & Soda - all of which are either opening stores in the US or acquiring existing stores. This, the Journal writes, "as American retailers, pressured by online shopping and cut-throat competition, are closing stores at a record pace.

"Credit Suisse estimates retailers will close more than 8,600 locations around the U.S. this year, which would surpass the number of closings during the 2008 financial crisis. Already this year 19 retailers including Payless Inc. and RadioShack Corp. have filed for bankruptcy protection, compared with 18 in all of 2016, according to S&P Global Market Intelligence."

Published on: May 11, 2017

Fortune has a story about yet another way in which Amazon's "technological prowess is helping it dominate the retail competition" - this case, the ability to thwart the bots that its competition uses to check on its site. An excerpt:

"Earlier this year, engineers at Walmart Stores who track rivals' prices online got a rude surprise: the technology they were using to check Amazon.com several million times a day suddenly stopped working.

"Losing access to Amazon.com's data was no small matter. Like most big retailers, Walmart relies on computer programs that scan prices on competitors' websites so it can adjust its listings accordingly. A difference of even 50 cents can mean losing a sale.

"But a new tactic by Amazon to block these programs - known commonly as robots or bots - thwarted the Bentonville, Arkansas-based retailer. Its technology unit, @WalmartLabs, was unable to work around the blockade for weeks, forcing it to retrieve Amazon's data through a secondary source, according to a person familiar with the matter who was not authorized to speak publicly."

The bottom line is this - Amazon's "mastery of the complex, behind-the-scenes technologies that power modern e-commerce is just as important to its success. Dexterity with bots allows Amazon not only to see what its rivals are doing, but increasingly to keep them in the dark when it undercuts them on price or is quietly charging more."

Published on: May 11, 2017

The Indianapolis Business Journal reports that Marsh supermarkets, having already designated 19 of its stores to be closed has identified another 16 that could be shuttered if the company cannot find a buyer.

"“The company is currently seeking buyers or business partners that would allow our locations to continue operations and avoid closures,” Marsh said in a letter to the Indiana Department of Workforce Development. “If the company is unsuccessful in its efforts the company will be forced to permanently close the locations identified on the enclosed list and terminate employees at those locations in 60 days from the date of this notice or sooner.”

The Business Journal writes that "after the 19 stores close in May, Marsh will operate just 44 stores, down from 120 in 2006, when Florida-based Sun Capital Partners acquired the company. But the number of Marsh stores in Sun’s portfolio would fall to just 28 if all 16 close that are listed in Monday’s letter to the state."

Published on: May 11, 2017

The New York Times has a story about how common beliefs about salt may be completely wrong.

Conventional wisdom: "The body relies on this essential mineral for a variety of functions, including blood pressure and the transmission of nerve impulses. Sodium levels in the blood must be carefully maintained. If you eat a lot of salt — sodium chloride — you will become thirsty and drink water, diluting your blood enough to maintain the proper concentration of sodium. Ultimately you will excrete much of the excess salt and water in urine."

The new theory: "New studies of Russian cosmonauts, held in isolation to simulate space travel, show that eating more salt made them less thirsty but somehow hungrier. Subsequent experiments found that mice burned more calories when they got more salt, eating 25 percent more just to maintain their weight.

"The research, published recently in two dense papers in The Journal of Clinical Investigation, contradicts much of the conventional wisdom about how the body handles salt and suggests that high levels may play a role in weight loss."

The Times explains the new research in great detail, and you can read it here.

Published on: May 11, 2017

• The New York Times writes that recently merged Ahold Delhaize reported Q1 operating profit that was up 12 percent to $602 million (US) and sales that were up three percent to $$17.2 billion "compared with the pre-merger companies' combined profits in the same period last year."

In the US, the story says, Ahold Delhaize pointed to "savings caused by synergies (that) helped offset price deflation, the effect of poor weather and the timing of Easter" as reasons for the positive performance.


• The Associated Press reports that the US Postal Service, having just reported a quarterly loss of $562 million because of "continued erosion in the use of first-class mail as well as expensive mandates for its retiree health care obligations," wants to increase the cost of first class stamp from its current 49 cents.

In addition, the story says, it is seeking "greater regulatory leeway" so it can increase prices beyond the rate of inflation, as currently mandated in federal law.

Published on: May 11, 2017

• Michael Parks, the character actor whose 100+ credits ranged from the iconic (and short-lived) 1969 TV series "Then Came Bronson" to the two Kill Bill movies written and directed by Quentin Tarantino, has passed away at age 77.

Published on: May 11, 2017

We got a couple of interesting emails responding to Kate's column yesterday, which talked about the need for culture change at so-called omnichannel retailers where in-store personnel are resistant to the idea of taking back merchandise sold online.

One MNB reader wrote:

I read through the opening article today “Seismic Shifts” and struggled with the tone and message, I shrugged it off as a personal problem, maybe I have a chip on my shoulder? Then I got to work, in a retail adjacent field, and a coworker who was also disconcerted brought it up unprompted. Glowering and disdainful are loaded words and subject to the viewer’s own bias. The author made a lot of assumptions in that paragraph about the employee’s mood and actions. In reality, we do not know why this single employee provided poor service.  Additionally, I worry when we infer something about all Bloomingdale’s cashiers from the experience with one.

“Commissioned-sales employees were angry they had to assist customers contemplating or completing an online transactions without any compensation.

And I thought, they just don’t get it.”

I am hoping the author meant the management at Bloomingdale’s, not the employees, though this paragraph structure was unclear to me. My thoughts about the initial anecdote aside, if employee pay is built on an outdated model, we must update our compensation rules, as the author calls out. The commission model provides staff with an excellent reason to have great customer service and sell product. The paradigm has shifted and management should work to better support staff in the new world.
 
The bottom line is this: 1) Yes, the employee should have worked harder to be positive about an experience that was challenging for them. 2) The author could have been more graceful in describing the human being behind the counter. It was super unfortunate that they had to have such a negative interaction! Can we not be more graceful with each other?  3) Bloomingdale’s needed to adjust the way it handles online shopping so that commissioned employees are rewarded for spending their time on returns or move away from commissions. It sounds like they are working that direction, maybe a little late for Kate.

And another MNB reader wrote:

I think you were spot on with the EXCEPTION of this statement from you:

“Later that day I read about a threatened strike at Bloomingdales' flagship store. Commissioned-sales employees were angry they had to assist customers contemplating or completing an online transactions without any compensation. And I thought, they just don’t get it. As the retail industry continues to undergo seismic shifts, everyone from the person in the corner executive suite to those working at checkout needs to focus on a more seamless omnichannel experience for the consumer, whether it takes place online, on a mobile device, in the physical store, or a combination of all three.”
 
I have been in CPG for over 30 years and for folks “in the trenches” to “get it”, the LEADERSHIP of the entity needs to “get it”.  Very, very few leaders in the retail industry today “get it”!!  Leadership moves around to different retailers like “washed up, non-successful professional sport coaches”.  A handful of leaders “get it”.  Perhaps they include H-E-B, Wegmans, Trader Joes, Publix (although a soft recent quarter) and we will wait and see about Kroger. One thing these folks have in common – HOME GROWN TALENT.
 
My two cents worth.

Kate doesn't need me to defend her, but I will anyway.

The one thing she wasn't being was snarky when it comes to her description of the salesperson with whom she was dealing. I'm the one who does snarky around here ... I thought her description was pretty matter-of-fact, and necessary to the piece.

I don't think either of us would disagree with the notion that for silos to be broken down and omnichannel to be more than a word, leadership and vision have to be provided from the top. But I would argue that the people on the front lines have to embrace the idea that their jobs depend on their ability to do everything they can to keep their companies viable.

I've worked for and with a lot of bozos in my life ... but I always took pride in my job, and figured that if I were going to take a paycheck, I needed to do it to the best of my ability, even if I thought the company were being mismanaged.




Got the following email from MNB reader Brad Morris about Sears:

I grew up outside Chicago in the middle class. My dad’s tools were Craftsman, the battery in the car was a Diehard, the washer and dryer were Kenmore. When it came to back-to-school shopping we went to either Sears and/or Penny’s. Our family couldn’t afford the likes of Marshall Fields, etc.

Kmart was a place we went for all our regular throughout-the-year shopping needs. I remember the minute we got to Kmart I would head straight to the toy department and that is where I would be when my mom was done shopping and came to get me and my brothers.

I am now 52. My children are 22 and 19, and have never set foot in either a Sears or a Kmart. Our first instinct is to check Amazon for anything and everything we need. I have been a Prime member since its inception.

I understand both product and company lifecycles. As stewards of a 131 year old brand, we are constantly thinking about the unmet or emerging needs of consumers, how to meet those needs and how to connect and reconnect on every level imaginable; both physically and emotionally. All things must either end or change/adapt. I just find it a little sad that a company like Sears, that was able to grow, adapt and change for over a hundred years, could be brought down in less than one generation by such monumental arrogance, ignorance and greed.

And from another reader:

I read your note about Sears and it reminded me of an issue I had with them a 5-6 years ago. I wrote a check for a purchase of about $250 dollars and they refused to take my check due to some stupid program that supposedly identifies ‘Hot Checks’. Never mind that I have never bounced a check and if they would have called my credit union they could have verified the funds were there to support the purchase.

At the end of the day, I left my purchase and went somewhere else. Guess what? I don’t shop at Sears anymore. Yes, I understand that there are deadbeats out there and yes, honest, good people do make a mistake. However, as the person in the attached article stated, talking to someone about it was like speaking to a wall.
 
I’ve never had that experience with anyone else. However, the debit card does get used nowadays and I probably haven’t written more than 2 checks in the last year!

Just one question...

What's a check?